Reviving Nepal’s Economy

Published on: 2015-07-20 00:00:00
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Reviving Nepal’s economy after the earthquake necessitates a development paradigm shift, from the aid dominated one to new principles, namely economic nationalism, national self-reliance, local self-determination and People Public Private Partnerships (4Ps).

--By Madhukar SJB Rana

By all accounts, the April 25 earthquake, though not as strong as that of 1934 at 8.4 on the Richter scale, was more destructive of life and property. It impacted the life and economy of 14 out of the 75 districts—mainly in the Central Region---affecting eight million people.

So far, the total death toll stands at 8,691 with 22,054 injured. It is estimated by the Nepal Chamber of Commerce that livestock killed could be more than 30,000. Luckily, all the 7.9, 6.9 and 7.4 shocks struck Nepal during the day time.

With the blessings of Lord Pashupatinath, most fortunately, all highways are open, communication and power lines are not disrupted and hospitals and clinics are fully functioning. So, too, the only international airport was fully operational on a 24/7 basis.

The event has been cataclysmic. Undoubtedly, this traumatic experience will, and should, lead to a metamorphosis in our national psyche and social behaviour. I believe that every challenge provides an opportunity.

The 3 Rs

Now is the time to get back to basics by what I would like to describe as ‘zero planning and zero budgeting’, which requires that we abandon the national goal of graduating Nepal from a LDC to a Developing Country by 2022 and, given the current realities and the daunting tasks ahead, give top-most planning and budgeting priority to the 3 Rs — reconstruction, rehabilitation and resettlement and also arrest the free fall that the impact is having on the economy by assuring macroeconomic stability and modest growth.

The government reckons that $ 5 billion will be needed for the 3 Rs. This figure is more than a quarter of the 2015 estimated GDP of $ 19.1 billion!

Note: Total Revenue Target for 2015 is only Rs 515 billion or approx 24% of GDP: How can we meet the challenge fiscally and financially?

This necessitates a development paradigm shift - from the aid dominated one to new principles - namely economic nationalism, national self reliance, local self determination and People Public Private Partnerships (4Ps).

Fiscal Recommendations

1. The government must undertake a thorough diagnosis of the destruction and damage of the economic and social infrastructure

2. In doing so, it must also estimate the time that will be taken to reconstruct as well as resettle people and the chosen locations for the latter

3. Certainly, a new and probably lower financial need will emerge

4. The next Budget must be all about the 3 Rs and not development. This means it must revisit all projects and cut back on all non-priority projects to the maximum

5. It must also practice austerity like never before

6. It must mobilize internal resources on a war footing with the existing tax laws

7. The government must appeal for debt write-off by all donors. Where it is not possible then a moratorium on debt repayment must be negotiated which will provide relief during the 3 R period of at least $ 215 million per year or Rs 20 billion plus

8. From the experience of Haiti, we are hoping that donors will provide at least $ 3 billion or Rs 3 trillion. Even if we spend Rs 1 trillion per year, the figure is still twice the total revenue targeted and not much lower than twice the total budget outlay of Rs 618 billion

9. Maximize FDI entry liberally

10. Invite Macau Casino to commence Lottery globally with due royalties going to the government at no cost and risk to Nepal

11. Implement the long standing (since 2005) policy of allowing Resident Tourists to live in Nepal facilitated by a 10 year multi-entry-visa with the possibility of buying apartments and starting businesses to create jobs

12. The amount of wood and wood products we import is worth more than Rs 13 billion per year. This calls for a new forestry sector plan. Also, research has demonstrated that the livelihood of the poor would increase by more than 10 times with a new approach to forestry resources utilization and conservation

13. Privitization of state-owned enterprises

14. Land Bank: Revive the concept as originally proposed in the 2005 Budget to develop land market

17. Promulgate the pending laws lying unattended to in Parliament and also deliberate on the draft of the Private Trust Act (pioneered by the late Bharat Raj Upreti) to promote national philanthropy in all sectors of the economy by creating not-for-profit commercial ventures

18. Move away from PPP to PPPP-- People Public Private Partnerships to include local communities and civil society organisations

Financial Recommendations

1. If we are to stick to a fixed exchange rate with India, then negotiate with India to allow their citizens to buy savings certificates from our banks

2. Inflation is now at 7.3% but it will rise due to supply constraints. So, an aggressive supply management of essential supplies is necessary using Emergency Powers to check smuggling, hoarding and black marketing and selling sub-standard goods by treating them as criminal offences

3. Arrest the BOT disequilibrium with controls on imports through additional duties to also maximize revenue

4. Devalue the NRs to IRs and lift all taxes on essential imports plus subsidize where needed for price stability, especially for food items since food inflation is around 10.1%. Devaluation will boost exports and curtail imports

6. Attack cartels and monopolistic practices to reduce the price of food stuffs and other essentials

7. Rather than the government issuing Bonds, let the banks do so. This may counter the very low deposit rates with higher returns to long-term savers. It will also develop the bond market which is long overdue for long term financing

Rana is former Finance Minister of Nepal.

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